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OC Makes Tax Differential Issue A Legislative Priority

OCEAN CITY – The issue of Ocean City gaining fair compensation from Worcester County for municipal funds paid for duplicated services came to the fore again this week when the Mayor and Council decided to make the issue of tax differential a legislative priority this year.

Tax differential, in layman’s terms, is essentially the money a municipality spends on a service that the county will not then have to provide. Locally, the town of Ocean City for years has contended it pays twice on services it funds itself with taxpayer money such as the police department and fire protection.

For years, resort officials have contended town residents, and even non-resident property owners, pay taxes to Worcester County for services the county does not actually provide for Ocean City. In the fire protection example, the Ocean City Volunteer Fire Company covers much of the incorporated areas in West Ocean City.

In that example, town officials contend the savings for the county is essentially doubled because it receives tax revenue for providing the service but doesn’t have to spend the money on labor and equipment that it would if it had to provide the service itself. Tax differential requests are not unique to Ocean City. However, the amount of compensation requested is usually high because of the unique nature of the relationship between the county and the town and its contribution to the tax base.

It is an issue that has surfaced several times over the last few years and does not appear to be going away. The Mayor and Council on Tuesday decided to make tax differential one of its top legislative priorities in the coming year forwarded to the Maryland Municipal League (MML).

Counties in Maryland are divided into two basic categories in terms of tax differential. “May” counties must provide tax relief to a municipality that provides evidence of duplicated services, while “shall” counties do not automatically have to provide tax relief even if there is evidence of duplicated services.

Worcester is a “shall” county, and, therefore, is not obligated to provide tax differential to its municipalities. Instead, the county has adopted a policy to offset the amount of money spent on duplicated services with yearly grants to its four incorporated municipalities and Ocean Pines, some of which is dedicated to specific projects or services and some of which is discretionary.

The municipal grant program has been successful for the most part in placating the towns, but the cost of providing the duplicated services has outgrown the amount of money returned to the towns in the form of grants from the county. Mayor Rick Meehan said on Tuesday the difference between taxpayer money spent on duplicated services has far outgrown the amount of grant money Ocean City receives from the county.

“The last estimate we have is about $12 million for Ocean City taxpayers and that’s a little dated,” he said. “It’s now probably more like $16 million, but what we got back from the county last year was about $2 million.”

Councilman Jim Hall said the town ought to present to the county the new figures laid out by Meehan.

“The updated numbers will make a big difference,” he said. “When they see that figure, it will definitely raise some eyebrows.”

Currently, 17 of the 23 counties in Maryland are “may” counties that must provide tax differential when evidence of duplicated services, with the other six remaining “shall” counties, most of which are on the Eastern Shore. For that reason, Meehan said the town of Ocean City should make correcting the anomaly one of its legislative priorities in the coming year.

“My guess is the other counties brought this forward years ago and we’re now in the minority,” he said. “If MML decides not to pick this up, we should pursue it on our own.”